Oliver Wyman overnight published a report commissioned by TheCityUK analysing the potential impact on the UK-based financial services sector of the UK’s exit from the EU.
The report, developed with input from TheCityUK’s Senior Brexit Steering Group, senior industry practitioners and the major trade associations, is a comprehensive and robust analysis that quantifies the impact of potential regulatory options arising from Brexit in terms of jobs, tax and industry revenues.
Ultimately, the report shows that it is in everyone’s interests for there to be a positive outcome to the negotiations that is mutually beneficial for the UK and the EU, causes minimum disruption to the industry and benefits customers who have come to rely on the UK as a uniquely skilled and connected ecosystem for financial services.
The analysis estimates that a Brexit where the UK is outside the European Economic Area but delivers passporting and equivalence – allowing access to the Single Market on terms similar to those that UK-based firms currently have – will cause only a modest reduction in UK-based activity. In this scenario, revenues are predicted to decline by up to £2bn (2% of total wholesale and international business), up to 4,000 jobs would be at risk, and tax revenues would fall by less that £0.5bn per annum.
Under conditions where the UK moves to a third country arrangement with the EU, without any regulatory equivalence, and its relationship with the EU is defined by terms set out under the World Trade Organisation, up to 50% of EU-related activity (£20bn in revenue) and an estimated 35,000 jobs could be at risk, along with £5bn of tax revenues per annum.
When taking into account the potential knock-on impact to the whole financial services ecosystem, the possibility of shifting entire business units, or the closure of lines of business due to increased costs could almost double the effect of Brexit.